Dominion President And CEO Gary Sypolt Discusses Dealing With Challenges And Change

INGAA Foundation Chairman Gary Sypolt is the newly named chairman and CEO of Dominion Energy, one of the nation’s largest producers and transporters of energy, with a portfolio of approximately 27,400 megawatts of generation, 1.2 Tcf equivalent of proved natural gas and oil reserves, 14,000 miles of natural gas transmission, gathering and storage pipeline and 6,000 miles of electric transmission lines. Dominion operates the nation’s largest natural gas storage facility with 975 Bcf of storage capacity and serves retail energy customers in 12 states. Corporate headquarters are in Richmond, VA.

Dominion’s strategy is to be a leading provider of electricity, natural gas and related services to customers in the energy-intensive Midwest, Mid-Atlantic and Northeast regions of the U.S., a potential market of 50 million homes and businesses where 40% of the nation’s energy is consumed.

As the CEO of Dominion Energy, Sypolt cited a continued focus on core values, those being safety, ethics, excellence and teamwork as a first priority. “We believe that if we do all of those well, then success will follow. Laying out and communicating the roadmap for our Dominion Energy strategic efforts will also be a key focus for me,” he added.

P&GJ: Where did you grow up, what were your interests, and what led you to decide on a career n the energy industry?Sypolt: The West Virginia town of Fairmont was my home. I enjoyed playing all sports, with football and track my main focuses. I also became very involved with Student Council my last two years of high school.

P&GJ: What was the career path that led to your current position?Sypolt: First, my parents taught me great values and always offered support and encouragement. I owe much of my success to them.

While I was in college, I had the good fortune of working summers for CNG. During my senior year, I was fortunate that CNG asked me to work as an engineer in its Gas Measurement Department. From there, I was given opportunities in several engineering departments as well as in Field Operations. In 1989, I went to CNG’s corporate office in Pittsburgh to work in Systems Gas Operations. From there, I returned to Clarksburg, WV as vice president of Gas Supply, then vice president of Customer Services, and then vice president of Facility Optimization. As you can see, the CNG leadership team gave me many opportunities to learn the business and grow personally.

In 1999, Dominion approached CNG with a merger opportunity. While change can be somewhat stressful, this merger has been extremely successful and was great for employees as well as shareholders. At Dominion, I initially served as senior vice president of its gas transmission operations. In 2003, my role expanded to include electric transmission as well. That was a very exciting opportunity that gave me a chance to learn a new business as well. All of those steps led to my current opportunity as CEO of Dominion Energy.

P&GJ: What are some of the professional and personal accomplishments you are most proud of?Sypolt: Professionally, I get the greatest satisfaction from watching the success of our team. They continually overcome obstacles and achieve success in an ethical manner. On the personal front, I am very proud of my family. I am blessed with a great wife, Janet, who has been so supportive of our family as well as my career. We have two great children, Chad and Brandy. Both were married last year to great people, Darcey and Walt. It was a big year at the Sypolt house: My wife and I are going to be grandparents. Our daughter and her husband are expecting in January. P&GJ: Is there anyone you would single out for being especially influential in terms of your career?Sypolt: My wife, Janet. Without her support I never would have had the professional opportunities that have been extended to me. Within the workplace, I can’t really single out just one. I always had a great boss who supported and guided me and have had so many great people to work with, both inside the company and within the industry.

P&GJ: How have you seen the industry change since you started work, especially the pipeline sector?Sypolt: The pipeline business has changed dramatically, all for the better. When I was vice president of Gas Supply at CNG, I had an opportunity to negotiate my way out of 1,100 gas supply contracts with producers as pipelines began to exit the merchant role. I saw competition grow as pipelines and even independent developers began building into new markets. As a result, pipelines became more efficient, more creative and more customer-service oriented. But what does remain the same is the integrity of the people within the industry. Even though competition is abundant, the pipeline industry is a very ethical industry.

P&GJ: What are some of the biggest challenges facing the pipeline industry today?Sypolt: Our industry is blessed with many employees who have a great deal of experience and do what they do very well. Unfortunately, many are already eligible to retire. As all of our companies attempted to become more competitive, we did not attract a lot of young people into our work force. The current economy has further delayed starting the training and replacement processes. We must begin addressing that knowledge and experience gap before much of the pipeline industry’s work force retires.

P&GJ: In terms of Dominion, what would you say are the defining events in its growth as an energy company?Sypolt: I would think that the merger between Dominion and CNG was a defining event. Since then, all segments of Dominion have been growing rapidly. Senior management has encouraged that growth and supported the effort with capital to bring it to reality. Dominion has been an exciting place to work. More specific to our pipeline business, over the past eight years, we have been able to nearly triple our gas transmission investment. One can’t miss an opportunity, because someone else will take it.

P&GJ: How has Dominion been affected by the recession?Sypolt: While we are not immune to the recession, we have, probably, been affected to a lesser extent than many companies. In June, our nation’s unemployment rate was 9.5% unemployment in our Virginia service territory was at 6.7 percent. Our electric sales declined about 2% in the second quarter of 2009 from second quarter of 2008, while power demand was down about 5% quarter-over-quarter for the rest of the nation.

With the change in capital markets, we have found ourselves prioritizing capital expenditures, particularly those viewed as discretionary expenditures. While capital is available to us, we remain disciplined in maintaining appropriate financial metrics and look forward to a continuing improvement in equity values.

P&GJ: What prospects for growth does development in the Marcellus Shale present for Dominion?Sypolt: The Marcellus Shale is an exciting formation. Flowing supply continues to increase rapidly from the Marcellus and is now believed to be above 220 MMcf/d. While rig counts in the nation have fallen about 60% from the peak, rig counts in West Virginia and Pennsylvania have actually increased 6%, but with a migration from vertical rigs to horizontal rigs drilling the Marcellus. With this rapid increase in flowing supply, additional gathering, processing and transmission infrastructure will be needed within the next few years. To help answer that infrastructure need, Dominion and Williams recently announced a joint venture project, the Keystone Connector, to move up to 1 Bcf/d from eastern Ohio to Transco’s Station 195 in southeastern Pennsylvania.

P&GJ: As the CEO of Dominion Energy, where will you focus most of your attention?Sypolt: Our first priority will be continued focus on our core values, those being safety, ethics, excellence and teamwork. We believe that if we do all of those well, then success will follow. Laying out and communicating the roadmap for our Dominion Energy strategic efforts will also be a key focus for me.

P&GJ: In terms of “green” issues, what is Dominion’s strategy?Sypolt: Dominion has a very aggressive green strategy that we believe puts us in a leadership position within the energy industry. We are focused on cost-effective technology combined with solid operating performance. Let me give you a few examples.

On the gas side of our business, our Dominion Energy business unit has been working hard to reduce fugitive emissions from our facilities, particularly from our gathering facilities and compressor stations. Along with reducing the cost of lost gas, it reduces greenhouse gas emissions. We believe this kind of win-win activity should qualify for carbon offsets, and we would like to see legislation to provide that opportunity.

Another example at Dominion Energy is the new administration building at our Cove Point LNG facility. The building was constructed to be LEED-certified building. And, at some of our compressor stations we have installed microturbines, which have a near-zero emissions profile, to satisfy our power needs.

On the electric side, we already have one of the most carbon-efficient generating fleets among major power producers. Our Dominion Generation fleet includes more than 8,200 megawatts of what I would classify as “green” generating capability, or more than a quarter of our total. This includes nearly 5,800 megawatts of emissions-free nuclear capacity and nearly 2,100 megawatts of hydro when you add in our Bath County pumped storage facility. We are looking at the possibility of adding another nuclear unit to our North Anna Power station in Virginia.

Dominion is one of the nation’s most-active developers of wind power. We are a partner in Indiana in the largest wind farm operating east of the Mississippi River and own half of another large wind farm in West Virginia. We also have wind projects in the early stages of development in Illinois and Virginia.

On the consumer side, Dominion Virginia Power recently announced plans to install “smart meters” for virtually all 2.3 million customers in the state. By allowing more-efficient power management by Dominion, this investment has very significant environmental and cost benefits. Once all of the meters are installed, the reduction in carbon emissions will be equal to removing 165,000 cars from the road and customers will save more than $1 billion over 15 years from reduced electricity use.

Dominion also is seeking state approval for 12 energy conservation and load-shifting programs. On top of that, we have provided discounts so far for customers to buy more than 3.3 million energy-saving compact fluorescent light bulbs.

P&GJ: As chairman of INGAA Foundation, what are your biggest priorities?Sypolt: I want our members to get great value from their membership. Surveys show that members look to get three main benefits from their membership. (1) They want to have great opportunities to network with other members. (2) They want to learn more about relevant topics that affect our industry and their businesses. And (3) they want studies produced that advance the natural gas pipeline industry or address issues they are dealing with.

This year we have attempted to provide more networking opportunities for the members by offering alternative events and leaving a less structured group dinner so that members have an opportunity to team up with whomever they like. We have also attempted to get speakers who would be of interest to our members. Working with Rich Hoffmann, executive director of the INGAA Foundation, and Don Santa, president of INGAA, we were able to land as speakers Chesapeake Energy Chairman Aubrey McClendon and David Manning, executive vice president of External Affairs for National Grid. They, along with Santa’s “Washington Report,” were well received by our members. Last, John Allcorn, the vice-chairman of the INGAA Foundation, provided a format that offered all members a great opportunity to give input on studies they would like to see the foundation sponsor. The process resulted in a high level of participation from the members.

We hope our members feel that they are getting good value from their membership and that we are sponsoring studies that make a difference.

P&GJ: What is your view on pipeline construction over the next few years? When do you expect it to pick up?Sypolt: I believe pipeline construction will return to a fairly hectic pace by 2012 and 2013. During the past three years we saw several supply-driven pipeline construction projects from the Barnett Shale, the Rockies and several LNG projects. Now we see new supplies growing from the Haynesville, Marcellus and Fayetteville shale formations. As those shales are being drilled, gas is initially being directed toward existing infrastructure so that it flows in a timely fashion. As the economy improves, demand will rise, commodity prices will rise and rig counts will follow suit. Existing infrastructure will not be adequate to move that gas to market as production continues to grow from those areas. Additional transmission, gathering and processing will be needed as well. P&GJ: What is your reaction to the INGAA Foundation study addressing unconventional gas supplies? Sypolt: The study is very useful in that it shows natural gas reserves are plentiful and can be produced at economic prices. That is great news, because it indicates that natural gas is an abundant fuel and can play a key role in our nation’s climate change efforts.

P&GJ: What is your perspective on LNG? Do you think it will play a role in the U.S. energy mix? Sypolt: There are many factors that influence this answer. LNG is a global commodity. It is directed to the world market that yields the greatest margin. That said, it is all about price, which is driven by supply and demand, not just in the U.S., but across the world. The amount of liquefaction capacity also plays a role.

The U.S. has competed fairly well for LNG in the summer due to its larger storage fill requirement relative to other countries. In the winter, natural gas prices in Europe have been more attractive due to U.S. storage deliverability relative to other countries, resulting in LNG being attracted elsewhere. This trend most likely will continue until American domestic supplies fall short of demand or a significant increase in liquefaction capacity is built. Should U.S. demand outpace supply, LNG will set the U.S. price. In sum, U.S. domestic supply will continue to satisfy the majority of domestic demand. Until domestic entities begin contracting for firm LNG supply, the U.S. will remain an opportunistic market influenced by global market conditions.